Monday, 23 May 2016

How to stay the course on your investing journey? Be less human......

Over the long run, patience is a virtue when it comes to investing. That's why financial advisors always advocate the benefits of starting young in one's investing journey. This will allow wealth to be accumulated and compounded over decades.

Unfortunately, humans are emotional beings and we tend to interact with one another more than ever before, thank to the widespread use of social media these days. As a result of high frequency trading, algorithm bots and easy access to international market news flow, fear and euphoria can perpetuate at an alarming speed around the world. Hasty decisions made in heat of the moment are rarely right.

Volatility is a fact of life. Investors tend to over-react in either direction. Therefore, we must perform thorough due diligence on our targeted companies and tune out the 'noises'. This will help us avoid making emotionally-driven decisions. With absolute clarity on our investment objectives, we reduce our chances of getting caught on the wrong side of an irreversible shift.

Warren Buffett and his trusted partner Charlie Munger do not panic despite the turbulent markets over numerous crisis because they know exactly what characteristics they want in a company before they decide to fire their 'elephant gun' and they stick to their investment principles come rain or shine. They do not take frequent pot shots indiscriminately with a gambler's mentality. Bershire Hathaway always go for big brands which enjoy a strong moat and protected by sustainable competitive advantage, stable cashflow and run by a competent management. Naturally, when these breed of companies become undervalued due to irrational short-term market forces, Warren Buffett will have the conviction to buy more instead of panic selling as he already understood them inside out. He know their fundamentals will remain robust. On the other hand, if you know the company so well, you will also divest with conviction once you see the fundamentals facing a terminal decline. Either way, there is no panic and fear involved. Just effective decision making.

Be a robot when making investment decisions

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